Renewables Obligation Order 2009

The temptation is to go over the some of the ground on the Economic Affairs Committee’s report when we debated that on 24 February, but I reassure the noble Lord, Lord Davies, that I will not do that. There seems to be no point; it was a good debate. However, I want to come back initially to one point on it, the cost to the consumer. When the noble Lord, Lord Vallance, introduced that debate, he talked about the increase in renewables required if we were to meet the 15 per cent target, suggesting that the share of electricity generated from renewable sources should be 34 per cent. He said: ""We concluded that the extra annual cost in 2020 would be £6.8 billion, an increase of 38 per cent. In terms of the average household bill, that would mean an extra £80 a year".—[Official Report, 24/2/09; col. 143.]" Nobody seriously challenged that figure. It is a number of years ahead, so it is of course difficult to quarrel with or endorse the figure. However, noble Lords may remember that in debate on the Energy Bill last year, I used statistics provided to me by Ofgem on the cost to the consumer of all the environmental measures being imposed on suppliers. I was given the figure of £79 a year. I asked whether Ofgem could bring that figure up to date, including a number of new elements, such as prospective increases in the CERT—the carbon emissions reduction target—and the introduction of CESP. I asked Ofgem also to look at what had been happening to the cost of the European emissions scheme and the impact of the order. It does not cite the figure in any of its printed material for the good reason that it is extremely uncertain. When I asked why it did not put the figure into the papers it circulated about the gas and electricity markets, the answer was quite clearly, "But it is only a guess". The figure that Ofgem gave was, rather remarkably, £80, but that is of course a completely different £80 from that cited by the noble Lord, Lord Vallance, in the debate based on the report of the Economics Affairs Committee. Is the Minister prepared to give a view on whether the figure of £80 for the total cost of the environmental measures that falls on the gas and electricity consumer is about right? The £80 referred to by the noble Lord, Lord Vallance, was simply the additional cost of going to 15 per cent of energy from renewables. Those seem quite substantial figures. The noble Lord, Lord Davies, and certainly his noble colleague sitting next to him, will recognise that I have repeatedly asked that there should be some mention in consumers’ bills of what they are paying towards environmental measures. That has always been resisted, but the case for resisting it is getting weaker almost by the day. Consumers want to know what they are paying towards the environmental salvation of this country. My noble friend put it succinctly when she welcomed the noble Lord, Lord Hunt of Kings Heath, to his post and said, "We are looking forward to together saving the planet and keeping the lights on". I repeat my question: can the Minister offer any prospect that the Government will require suppliers to show in the bills what consumers are paying towards this? In a moment, I shall turn to one or two issues arising from the order, but it is worth asking one other question that arises from the Explanatory Memorandum, which is a very helpful document, as always, once one wades one’s way through it. Paragraph 3.8 concerns the issue of competition approval. It states: "DG Comp"—that is of course the directorate-general of competition at the Commission— ""have signalled informally that they are content to approve the Order and we are waiting for formal notification that it has been approved"." Have the Government now received that formal notification? There is many a slip twixt cup and lip and although an initial informal indication may be of some value, one would like to know that the whole thing has now been formally approved. If it has not, and if there are likely to be hiccups, that will be a substantial hurdle for the Government to overcome. The order is a substantial document. I am sure that I am not disclosing any embarrassing secrets when I confess that I have not read it the whole way through. I have, however, taken advice. I asked: is there anything different from what was envisaged when we debated the enabling legislation in what is now the Energy Act 2008 and, if so, could my attention be drawn to it, and should any other issues be raised? The main change under the order from the previous order is, as the Minister said, the banding proposals. The impression that I have been given from the consultation I have undertaken is that now that the industry has had a good deal of notice—consultation documents were issued—on the whole, it is prepared to live with this. However, there is a very strong view that if the renewables obligations certificate procedure is to continue to command the confidence of the industry, it must be stable. There was great welcome for the fact that the Chancellor in the Pre-Budget Statement last autumn increased the period up to 2037. That has been welcomed because it implies great stability. The question of further review, which the order seems to indicate may happen, is more difficult. It is important that the system is not repeatedly tinkered with. That, of itself, will undermine confidence. Very large sums of money will have to be invested not only in offshore wind but, as the Minister suggested and as they achieve maturity, other forms of renewable energy. There could not be a bigger investment than the Severn barrage, which is still very much on the agenda. If people are to invest such sums, they must have certainty that the system will have the stability for which I have been asking. I shall raise two or three other short points. One effect of banding is to reduce to one of the lowest bands—0.5, I think, in the new ROC levels—direct injection equipment into large coal-fired power stations. The impression I get is that although the industry will be disappointed to lose what it has received so far, it is prepared to live with that; but it totally supports the reintroduction of a cap on the number of co-firing ROCs that can be used by suppliers. If you have a reduced amount of the ROC, it is important that users in other systems should not be able, as it were, to drain off the available money, so that those who are interested in investing—they are often very long-term investments—in renewables and co-firing are protected. All I would ask is this: can the Government give a clear undertaking that the cap will not be lifted in the short term? Of course I cannot ask the Minister to say that it will never be lifted—that would be silly—but at the moment the industry wants the cap to be stable. The view has been put to me that energy crops should be included in a supplier cap. Without doing that, there is a significant risk that these too could flood the ROC market. I should say that there the variety of energy crops is growing. I have on my desk papers about a new plant nearing completion in the north-east based on crops that cannot be used for food but which would otherwise go towards producing animal feed. This struck me as an extremely good scheme, but if it was unlimited, those who are investing in wind power and other forms of renewable energy may feel that they are going to suffer. The order also looks at the question of using the ROC procedure to support heat. This is arousing a good deal of anxiety. The renewable obligation is a support mechanism for renewable electricity, and the view has been put to me quite strongly that there is in fact a separate renewable heat incentive. Indeed, my noble friends will recall that we got that into the then Energy Bill. We are running the risk of duplication if renewable heat is also going to be incentivised by an obligation that is primarily intended for renewable electricity. Can the Minister say anything about that? Finally, I turn to the question of the differential between energy crops and biomass. I have been told that there is no climate change justification for the differential between regular biomass and energy crops. There are no additional carbon benefits through the use of energy crops, and research by a company called Themba Technology Ltd in collaboration with the Edinburgh Centre for Carbon Management suggests that co-product biomass tends to have lower life-cycle greenhouse gas emissions per unit of energy than dedicated energy crops. I have not examined the research and I would not be qualified to assess it, but can the Minister say something about it? What is being suggested is that by treating energy crops preferentially, there is a risk that the environmental impact will be negative as the displaced biomass is likely to have a lower overall environmental footprint. In the absence of any additional environmental benefit, and some evidence to suggest a reduced benefit, we believe that the 0.5 renewable obligation certificate per megawatt hour premium attributed to energy costs will be very difficult to justify to consumers. It may be a minor point in the context of the entire order, but it is one which the Government should answer. Other than that, we debated these things fully during the course of the Energy Bill and the order fulfils almost entirely what was expected of it—it is a very long order—and all I can say is that I hope it works.